LAST WEEK, the Public Utility Commission denied PGW's request for a $100 million rate hike - argued by PGW as necessary to make infrastructure improvements and to grapple with its $1.2 billion debt, which puts the city-owned utility on the brink of a junk-bond rating.

The PUC instead granted it a $25 million increase intended for PGW to pay back the $45 million it owes the city.

PUC Chairman Wendell Holland says that one of the best options for PGW is selling it.

Given the realities of PGW and the lack of help from its regulatory boss, that's a little like aiding a starving person not with food, but with the advice that he really ought to eat a little more.

PGW made a compelling argument for $100 million, based primarily on how much more expensive its staggering debt load is going to get, since PGW's ability to get low borrowing rates depends on its ability to pay back its loans. A junk-bond rating would drive the cost of borrowing even higher. That cost will be borne by the ratepayers one way or another. Forestalling that is going to make it only worse in the long run for PGW customers.

And ironically, it's only going to make a sale of the company that much more difficult.

Then there's the obvious question: What company would consider buying a utility with such a large debt, and with a regulatory body that won't grant rate increases to pay for it?

Holland says that he is encouraged by an increase of mergers and acquisitions in the last 18 months. That was probably before the mortgage meltdown tightened credit markets and began to chill the appetite for mergers and acquisitions.

The other option to fixing PGW is for the city to absorb the debt in order to make the company look attractive to buyers. But the city can hardly afford to absorb that kind of debt.

Holland also suggested Harrisburg might provide some form of financial help. Frankly, we think it more likely that help would come from Harrisburg, N.C., than from Harrisburg, Pa.

The PUC says it is trying to protect PGW customers. But we think this short-term action overlooks the much larger damage that ratepayers will be hit with if no solution is forthcoming.

In voting down the rate increase, the PUC has done no favors for the next mayor. More important, it's doing no favors to PGW customers, either, whatever their income level. *